Alternative Risk Financing

Definition - What does Alternative Risk Financing mean?

Alternative risk financing is a type of self-insurance where a company allocates money for risks. This came about when company risks could not be financed by insurance companies. Alternative risk financing units are mostly based outside the US.

Insuranceopedia explains Alternative Risk Financing

Alternative risk financing happens when a company decides to set up its own insurance assets. These assets are for losses that might happen in the future. These include but are not limited to workers' compensation and other liabilities.

The place where alternative financing has its headquarters is called the domicile. The legal set-up varies from one domicile to another. The place with the most domiciles is Bermuda.

Alternative risk financing can be set up by one company or by a group of company. Since the risks are financed inside (the company or group of companies) rather than outside (by way of an insurance company), it can be said that the insurer is also the policyholder.

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